I have learned for a European call option, that according to put-call parity, call IV and put IV should have a same value. But the values of IV are very different from Nifty option contracts. Can someone please help me understand why IVs are not the same?
Hi @KarthikAcharya
The video was definitely helpful.
But my real question is regarding why the put-call parity theory is not seen to be working in the NIFTY options. According to the put-call parity if the IV of one side goes up it will automatically push the IV of the other side because of the Arbitrage opportunity which arises.
Please see this Put-Call Parity Definition article for more about put-call parity.
you see these differences due to wide bid ask spreads and ITM prices being effected by illiquidity and STT.
This video from Sensibull might help, as well as Reason for different put and call IV at same strikes on NSE - #4 by Hemant_Prasad.
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Hi Karthik
Thank you for replying. The link to the forum you shared solved my doubt.
Put call parity doesn’t work all the time because of brokerage costs as well as the costs of taxes. Practically if the arbitrage opportunity is very small it is not profitable because of the extra costs.
The follow-up question is, what should be the difference between the two sides’ prices in order for arbitrage to be profitable?
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That is a hard call cannot define/specify it. Further since there are time consideration and other factors involved retail traders rarely get these opportunities.
ok Thank you